Definition

Price to Median PB Value is a valuation metric that compares a company's current price-to-book (PB) ratio to the median PB ratio of a relevant peer group or industry. It helps investors assess whether a stock is overvalued or undervalued relative to its peers.

Formula

Price to Median PB Value = Current PB Ratio / Median PB Ratio of Peer Group

How to use the valuation method

To use this valuation method, calculate the company's current PB ratio by dividing its market price per share by its book value per share. Then, determine the median PB ratio of a comparable peer group or industry. Divide the company's PB ratio by the median PB ratio to assess its relative valuation. A value above 1 suggests overvaluation, while a value below 1 indicates undervaluation.

Which industries it work best in

This method works best in industries where companies have significant tangible assets, such as manufacturing, utilities, and financial services. These industries typically have more stable book values, making the PB ratio a more reliable measure of valuation.

Which industries it does not apply to and why

The Price to Median PB Value is less applicable to industries with high intangible assets or rapidly changing asset values, such as technology and biotech. In these sectors, book value may not accurately reflect a company's true value due to the importance of intellectual property and growth potential.

Summary

Price to Median PB Value is a useful tool for comparing a company's valuation to its peers, particularly in asset-heavy industries. It provides insight into whether a stock is overvalued or undervalued relative to its industry. However, it is less effective in industries where intangible assets play a significant role in valuation.